Tax Record Retention

Retaining and storing your income tax records is an important final step of your tax filing responsibility. We would like to remind you of the rules for keeping your tax records along with some information on storage options.

 When determining how long to keep most of your income tax records, we look at the time frame over which the IRS can audit a return and assess a tax deficiency or that you can file an amended return. For most taxpayers, this period is three years from the original due date of the return or the date the return is filed, if later. For example, if you file your 2009 Form 1040 on or before April 15, 2010, the IRS has until April 15, 2013 to audit the return and assess a deficiency. However, if a return includes a substantial understatement of income, which is defined as omitting income exceeding 25% of the amount reported on the return, the statute of limitations period is extended to six years. Read more

CA Estimated Tax Underpayment Penalty Assessments

Many of our clients have been receiving notices from the FTB assessing a penalty for underpayment of estimated tax. Many of these notices are unwarranted, and it seems the FTB is taking the stance that it is the taxpayer’s responsibility to prove they don’t owe a penalty that should never have been assessed! Read more

Gotcha – Use of TurboTax Is Not a Defense

The Tax Court rejected a taxpayer’s argument that their use of TurboTax to prepare their returns caused them to misstate their income, which resulted in an IRS assessment and an accuracy related penalty. In the case Aileen Yat Muk Lam , TC Memo 2010-82 (Tax Ct.) the wife argued that they consistently filled out their tax returns using TurboTax and she consistently confused capital gains and losses with ordinary income and expenses. The court rejected her argument noting that “tax preparation software is only as good as the information one inputs into it.” Just one more reason to use a professional tax preparer!

Tax Credit for Providing Health Insurance to Employees

Health Savings Accounts

Health Savings Accounts (HSAs) have become a popular option in the medical benefits arena. Most people are familiar with the basics of how the HSA works- you contribute money into the account, get a deduction for the contribution, earn tax free growth and get tax free reimbursements for qualified medical expenses. However, there are some details you should know about HSAs or you may find yourself making non deductible contributions or subject to penalties. Read more